Driven by slightly higher per unit operating costs and lower realisations, blended Ebitda margin at `837/t (+27% y-y, flat q-q) was 10% below our Rs 924/tonne forecast.
By Nomura AEJ
ACEM’s standalone Q4 revenue of Rs 31.4 bn (+10% y-y, +19% q-q) was in line with our forecast as higher cement volume growth (+7% y-y, our estimate of +5%) offset lower blended realisation (-4.5% q-q, our estimate -3%). Standalone Ebitda at Rs 5.5 bn (+36% y-y, +24% q-q) was 8% below our estimate but 5% above consensus, driven by higher inventory cost. Reported PBT came in 13% below our estimate. However, due to the company adopting a lower corporate tax rate, reported PAT of Rs 4.5 bn (-15% y-y, +94% q-q) was 32%/48% ahead of our/consensus forecasts. Adjusted for reversal of deferred tax liability, standalone PAT at `3.5 bn (+41% y-y, +50% q-q) came in 2% above our estimate and 15% above consensus. For CY19, standalone adjusted PAT at `14.3 bn (+19% y-y) was 2.8% above our estimate. Consolidated reported EPS of `10.55 (-4% y-y) came in 2.4% above our estimate.
Compared with a 4-6% y-y growth for ACC/SRCM and a 4% y-y decline for UT, ACEM’s volumes at 6.54 mt (vs our estimate of 6.44 mt) was +7% y-y, with premium products’ growth higher at 14% y-y. Compared with 3-5% declines for SRCM/UT/ACC, ACEM’s blended realisation at `240/bag (our estimate `243/bag) was -4.5% y-y. Cement realisation at Rs 232/bag declined 5% y-y. With higher volumes offset by lower realisation, net revenue at Rs 31.4bn was in line with our estimate but 2% above consensus. For CY19, ACEM’s volume at 24 mt decline by 1% y-y (compared to 5% y-y growth in.
CY18 and 2% y-y growth in CY19 for subsidiary ACC). For CY19, ACEM’s blended realisations and cement realisations were both +4% y-y. Per unit power and fuel costs at Rs 1,023/t fell 11% q-q, driven by lower coal/ petcoke prices and higher operating leverage. Per unit freight costs at Rs 1,281/t declined 1% q-q due to operational efficiencies and optimisation in supply chain. Similar to ACC and SRCM, per-unit raw material costs increased 12% q-q driven by higher inventory costs. Per unit operating costs at Rs 3,958/t (-1% y-y, -5% q-q) was 0.5% above our estimate.
Driven by slightly higher per unit operating costs and lower realisations, blended Ebitda margin at `837/t (+27% y-y, flat q-q) was 10% below our Rs 924/tonne forecast. Greenfield project at Marwar Mundwa, Rajasthan, is on track for commissioning by CY20-end. This project will have nearly 3.5 mtpa of clinker capacity. Including 1.8 mtpa cement grinding capacity, this new clinker capacity will add nearly 4.5 mtpa to ACEM’s overall cement capacity by optimising clinker distribution in North region. ACEM adopted the lower corporate tax rate of 25.17% (from 34.9% previously) and reversed deferred tax liability of `1.03 bn. ACEM announced a dividend of Rs 1.5/share.
While demand has been weak for the past three quarters, we see revival signs (e.g., pickup in low-cost housing, and resumption of a few large infrastructure projects). The government’s recent $1.5-tonne (`102 tn) spending plan for the National Infrastructure Pipeline over the next five years and the recent Budget announcement to grant full tax exemption to sovereign wealth funds for investments in infrastructure projects boost the demand outlook, in our view. However, we think ACEM appears to be least geared among the large-cap cement names under our coverage to benefit from demand pick-up, as it has not added any capacity in nearly five years, and its capacity utilisations are high (~82% in CY18, ~80% in CY19). However, constraints should ease as Marwar Mundwa capacity comes online, and helps increase overall cement capacity by nearly 15% in 2021.